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Our CEO caught up with Kylie and Matt of 1494 2AY to discuss the Reserve Bank of Australia’s (RBA) interest rate decision.
Kylie opens the chat by commenting that there probably weren’t too many people surprised by the decision.
Stephen agrees, commenting the RBA left the rates on hold showing some stability. The message coming from the new RBA Governor is that inflation is moderating, but it’s taking some time to come down to the RBA’s target levels. The rises that we’ve seen, were needed to bring inflation levels down but still have some way to go.
Matt comments that rates have eased but are still above the RBA target. He asks Stephen if there are any other factors in play.
Stephen says interest rates and inflation go hand-in-hand. Once inflation goes up, interest rates increase to bring inflation down. Items like clothing and household goods are reducing in price but prices for essential services such as housing, health and education are increasing significantly.
He then goes on to explain that recent rises over the past 12 months or more have meant households have cut back on those non essential items.
Kylie comments there has been a lot of conversation about immigration playing a role, increasing to record highs over the last 12 months.
Stephen agrees it does play a role, and whilst important for the country’s economic stability, it’s also increasing demand for services that aren’t increasing at the same rate. Stephen gives the example that rent has increased nearly 8% in the last 12 months which is the strongest growth in 15 years, while vacancies fell by 1%.
He speculates that rent increases could link back to the lack of growth in building residential homes to support a population growth of 750,000 in the last 12 months. Linking this back to inflation, more housing along with insurance and education is one of the largest components of inflation. A growing population could be having a larger impact than what we can see.
Matt suggests that relying on interest rates alone is not going to get inflation down.
Stephen agrees saying combating inflation is a broad-based exercise. Interest rates affect the young and those in debt who do a lot of the heavy lifting. It’s suggested that the government may look to limit our immigration to balance construction.
Stephen finishes by saying that interest rates and the rises we’ve had are having a needed impact. We’re slowing spending and only buying the necessities, but we need to be careful not to hit the tipping point where we’re forcing the most vulnerable to cut back on the necessities.